How big will diesels get in US car market?

Implications: Converging forces of high oil prices, increased CAFE mpg regulations, and looming EPA CO2 emissions standards will provide fertile ground to grow diesel market share in the US passenger vehicle market.

Analysis: The dramatic falloff in large truck and SUV sales has put a pinch on Detroit's profit margins.  Like it or not the Big 3 have to address the need for smaller, more fuel efficient engines to drive future sales.  In Europe lower fuel cost and higher mpg has driven diesel engine share over 50% of the passenger car market.  The US automakers have all announced plans to introduce new diesel models to grow share domestically.

Diesels offer 20% - 30% better fuel economy, 15% - 20% lower CO2 emissions, and improved torque output vs. comparable gasoline engines.  Faced with future 35 mpg CAFE standards and fuel prices over $3 per gallon diesels make perfect sense for the US market.  All major OEMs have developed car engines for the European market; these designs can easily be transplanted the US models.  For larger trucks and SUVs new engine designs are already being put into production - by 2009/2010 all of the Big 3 will offer a diesel option for light trucks and/or SUVs.  Honda, Nissan, Mercedes, and VW/Audi have all committed to diesel models in the US as well.

Diesels cost more to produce and require more expensive emissions systems; sticker prices will likely be $2K - $3K higher vs. current gasoline models.  Depending on fuel prices and miles driven the payback can be realized in 3-5 years; resale value will increase accordingly.

There may be no better solution to Detroit's long term needs than to match the diesel share that exists in Europe today.